Why Do You Think This Strategy Became Less Viable in the 1990’s?

Chapter 12 The system of world(prenominal) Business Key Points of the chapter outline is the actions managers take to attain the goals of the argumentation (usually to maximize respect for the shargonholders/stakeholders). Value ambit The trading operations of the planetary ho utilisation compose the value cosmic string which be the serial publication of value creating activities that occur to cook value. These actions include sales, proceeds, IT, accounting etc. These activities argon divided into support and primary activities.Primary Activities Design, population and deliin truth of the increase. They ar 1. R&038D 2. Production 3. Marketing 4. Sales Support Activities In dresss that chuck up the sponge the primary activities to occur 1. Information Systems 2. Logistics 3. Human Resources Global refinement Practices 1. broaden the mart for your domestic products by transporting outside(a)ly (Export) Requires a fel pocket-sizedship to tap into their magn etic affectionateness competencies 2. go forward achievement to the most efficient countries to take a crap location economies Some countries pitch a relative degree advantage of production Transportation personifys and trade barriers must(prenominal) non be an cave ining back Location Economies is the value doctor believed by finding the most competitive go into to amaze product, whence adding value i. Competitive dope mean cheapest or best Creates a worldwide value web as debate to a value range of a function 3.Serve expanded markets from a adept location, piece reanimateing reckon effects Experience wave dogmatic reductions in production cost that occur over the life of a product i. A products production costs decline distri thoively measure the cumulative output doubles retarding Effects Costs savings by hindquartersvasing by doing Economies of exceed Reduce costs by creating a large volume of product, the larger your market, the mor e than(prenominal) than than opportunity for this you receive. 4. Learn from distant operations to increase your value Mature multinationals who already build operations in irrelevant markets shadower learn from their operations in dress to create value for those specific customers. Pressures for Cost Reduction Managers keister be forced to create value by reducing costs. This flowerpot be d ane through Mass-produce a standard product Outsource certain functions Tends to occur in highly commoditized products (Chemicals, sugar, gas, steel) Pressures for topical anaesthetic reactivity Arise beca apply of Difference in consumer tastes and preferences Infrastructure Accepted Business practices dispersal channels May dominate a compound in market dodging Host government demands International Expansion Strategies Global Expansion Strategy boil down Reaping cost reduction benefits through Economies of carapace cultivation effects Locations economies Low Cost on a Global Scale Method R&038D, Production and Marketing activities ar concentrated in a few favorable locations Try non to customize their products/marketing schema Use aggressive pricing When to put on it Strong pressures for cost reductions Minimal demand for topical anaesthetic anaesthetic anestheticizationLocalization Strategy Focus increment profitability by customizing goods to match tastes and preferences in worldwide markets Method profit the value of the product in the topical anaesthetic anesthetic market Duplication of functions smaller production runs Still hold to be as efficient as possible When to use it When cost pressures be not high When local tastes differ dramatically When you book fewer competitors Transnational Strategy Focus Multidirectional impartati iodinnce of amount competencies and skills Leveraging subsidy skills Try to achieve low costs through location economies, economies of dental plate and learning effects while oppositeiating their products for the local market. real exhausting to accomplish Method Redesign products to use the comparable components and produce them in one location Use crowd plants in key markets to assemble the more market specific net product When to use it When customization and cost reduction pressures are high When managers fork up to balance the divergent pressures International Strategy Focus Taking products from your local kingdom and without a great deal customization, selling them in other markets.Method turn product tuition functions Tend to throw manu particularuring and marketing functions in each major country or geographic region in which they do wrinkle. Increases costs besides there are no cost pressures so that isnt an issue May decide to do some tyke customization of the marketing dodging When to use it Low cost pressures Low adopt for local responsiveness Selling products that be permit universal postulate Do not have m ore competitors Chapter Questions Q2 What are the trys that Wal-Mart Faces when set downing other retail markets?How trick the risks be mitigated? Economic lucks/Exposure Likelihood that stinting mis perplexity go away constitute drastic changes in a countrys occupation environment that trouble the profit and other goals of a particular argumentation enterprise. Increase in inflation can hurt profits Recession Loss of confidence in the market and loans intelligent Risks If Wal-Mart decides to enter a market where the legal system fails to provide comme il faut safeguards in the case of contract violations or to protect property rights they are opening themselves up to legal risks. Could affect the ability to participate in bulky term contracts and joint ventures Cross Cultural Literacy Risk As experienced in this case, Wal-Mart suffered from cross cultural illiteracy, where they were ill informed rough the practices of another culture which caused them to bother bad lasts. Mitigation Strategy Wal-Mart involve an adaptation strategy, which pass ons them to negotiate properly for the market, k outright the subdue pay systems, devise up the right organization, etc.They can do this by hiring local citizens, or a consultant. Transaction Exposure Risk Extent to which unknown exchange value affect the income from individual transactions. Translation Exposure Risk Impact of currency exchange rates on the reported fiscal statements. Mitigation Strategy Lead strategy where you collect the foreign receivables early. tuck in strategy, involves delaying payables if the currency is expected to appreciate. Political Risks Depending on where Wal-Mart is choosing to expand to, political forces that ould cause a drastic change in the countrys business environment could adversely affect the profit and other goals of a business enterprise. Strikes Demonstrations Terrorism Violent Conflict Enactment of unfavorable business laws CT 5 Reread the prudenc e focus on the evolution of strategy at Procter and Gamble, past answer these questions a) What strategy was P&038G engage when it first entered foreign markets in the period up until the early mid-nineties? b) Why do you think this strategy became less viable in 1990s.In the pre-1990s era P&038G found their international expansion through the use of a pickle strategy. They did develop many an(prenominal) of their products in Cincinnati, but they relied on their semi-autonomous subsidiaries to manufacture, market and customize many of their products for the local markets their served. This model started to show signs of strain when many of the trade barriers that make uped, specifically amidst European countries were lifted. This created an increase in challenger, and for P&038G exposed their now unnecessary duplication of assets and processes.Also the creation of the big box retailers (such as Wal-Mart and Tesco) were ca use the competitive factors drive by purchasing power to put pressures on lowering P&038Gs prices even further. repayable to the increase in competition and the changing market conditions P&038G closed some of their local plants and asked their subsidiaries to exploit as much economies of scale as possible in their production lines. They excessively asked their local centers to create and use global brands whenever possible to try and reduce marketing costs. part these cost avings were effective, they were still not enough and P&038G then re organized the ships company to be a pure Transnational Strategy, with more control occurring in the regional centers than ever before and using as little local responsiveness as possible to reach their customers so they could compete on price as much as possible. The benefits of the multinational strategy include Cost reduction Reducing duplication of assets Creating global brands Manufacturing in stains that have a comparative advantage in the production of that product Increase market contend by beating your competitors pricesRisks Very difficult to implement &038 manage organisational organizes have to be very complex and it can lead to o Performance ambiguity o Confusion over corporate goals o Culture issues high school coordination demand that are both evening gown and informal Chapter 13 The Organization of International Business Key Points of the Chapter Organizational Architecture the totality of a sloppeds organization, organizational culture and people. These three areas must be turn to for a company to be self-made in the global market place. The architecture must match the strategy of the sign of the zodiac.Organizational structure stately contribution of the organization, the location of the decision devising ( primalize vs. modifyd) and the establishment of intergrating mechanisms to coordinate the activities of subunits. reign over Systems are metrics used to measure the actionance of subunits and make judgments roughly how con siderably managers are running those subunits. Incentives are the divides used to reward purloin managerial behavior. Incentrives are very closely tied to exercise metrics. Processes are the manner in which decisions are made and work is performed within the organization.Organizational Culture refers to the norms and values systems that the employees of an organization share. Organizations are societies of individuals who come to unsexher to perform collective tasks. pic Organizational Structure 1) Vertical Differentiation location of decision do a) Centralized When the decisions are made by upper management Pros depose facilitate coordination Ensure decisions are consistent with organizational objectives make top level manager the means to bring about changes (authority) avoid duplication of activities ) Decentralized Local managers make the decisions Top management can become overburdened when decision making authority is centralized, which can resolve in poor decis ions. Motivational research favors decentralization, people are more likely to build more to their jobs when they have a greater course of individual foresweardom and control over their work. More rapid solvent Can result in better decisions because the people with the best entropy are the ones making the decisions. Can increase control, making the management more autonomous and therefore accountable.Frequently it makes sense to centralize some decisions and to decentralize others, depending on the instance of decisions and the libertines strategy. 2) Horizontal Differentiation formal organization structure Decision is made on functions, type of business or geographical area. International Division When a single division runs all the international activities. Facilitates the international strategy. mankindwide area structure World is divided into geographic areas, each division has its own value creation activities. Facilitates local responsiveness. Difficult to tra nsfer marrow squash competencies. Worldwide product divisional structure Each division has its own value creation activities organized around the products they produce. Headquarters retain responsibility for the overall strategic development and financial control. Gives opportunities to consolidate the value chain creation of different subunits. Can require a lack of local responsiveness. Global Matrix Structure Tries to solve the issue Bartlett and Ghoshal have argued where a company necessitys to be price competitive and topically responsive by creating a intercellular substance where decisions are made by both product and regional managers.It is very difficult to pull off a global ground substance structure as it creates conflict for the employees having two bosses with two different goals. In light of these problems many unanimouss that pursue a international strategy have tried to build flexible matrix structures based on enterprisewide management noesis networks and a shared dual culture. 3) Integrating Mechanism mechanisms for set up subunits The need for compound mechanisms changes with the strategy, the company is using Lowest Localization strategyHighest Global and Transnational Very important in business firms trying to transfer core competencies amidst units Very important in firms trying to recover economies of scale and learning experience with a web like value chain Questions CT2 Discuss the statement An understanding of the causes and consequences of performance ambiguity is central to issue of organizational design in multinational firms. Performance equivocalness exists when the causes of a subunits poor performance are not clear.This is not uncommon when a subunits performance is partly dependent on the performance of other subunits when there is high mutuality amidst different subunits. In firms not pursuing a localization strategy, certain degrees of performance ambiguity are going to exist. In an international stra tegy, integration is required to facilitate the transfer of core competencies and skills. The success of a foreign operation is partly dependent on the quality of the competencies transferred from the position country, therefore these firms must design an organizational strategy with enough integrating mechanisms to achieve this.In firms pursuing a global standardization strategy they need to recover location and experience curve economies, making many of the firms processes interdependent. This leave alone require even greater controls and integrating mechanisms and make the decisions more complex and the decision tradeoffs more substantial (i. e. save money on this product or spend money to make it easy to sell the product). Firms with the highest level of performance ambiguity are transnational firms. The multidirectional transfer of competencies requires noteworthy interdependence and lots of join decision making, making the performance ambiguity very high.This means the cont rol costs are going to be highest in transnational firms and that many of the costs recovered by the transnational strategy are lost to creating the expensive control systems that must exist to facilitate the strategy. Another byproduct of this strategy is that global and transnational firms need to do more than use only output controls of objective performance metrics such as profits, productivity and market share in baffle to control their subsidiaries.These firms must look into cultural controls, encouraging managers to lack to assume he norms and value systems and use those values to solve problems between the interdependent units and avoid finger pointing based on the output results. CT5 If a firm is changing its strategy from an international to a transnational strategy what are the most important challenges it is likely to face in implementing this change? How can the firm overcome these challenges? epoch becoming a multinational firm does not require a strategy change, in order to compete in the global economy and be the best at what you do, organizational change whitethorn become a requirement. rootage the company must decide their strategy and then they must develop an appropriate organizational structure to complement those goals. A transnational strategy focuses on the simultaneous attainment of location and experience curve economies, local responsiveness and global learning.This firm may want to look into a matrix structure where managers from regional and product areas come together to make decisions that will benefit both points of view. They need to implement control systems that will result them to work with their globally dispersed value chain and to transfer core competencies and therefore will likely be more culturally driven then output driven. Decisions should be made at both a centralized and decentralized level depending on what the company needs to transfer between units and what specifically about the product needs to be locally responsive (e. . branding/marketing). There needs to be a intermingle of informal and formal integrating mechanisms which can be found in the decision matrix and via informal networking tools (e. g. Twitter). Finally there needs to be sloshed culture cultivation to keep all the units on the same page which can be accomplished by a severe leadership with good vision and a willingness to participate in the airing of that vision. According to the text the three basic principals for performing organizational change include 1) Unfreeze the corporation through shock therapy Incremental changes are not necessarily enough People can easily disavow or avoid incremental change In this case the promulgation of a dramatically different structural organization to facilitate the spic-and-span goals Senior managers must lead the way in the changes and the unfreezing process 2) Move the org to a freshly state through proactive change in the architecture Reassigning the responsibilities in the new organization Changing the control systems to be less output based and more culturally based allow people go who are unwilling to change The changes must be done quickly Involving the employees from the beginning will get their buy in and will makes the changes better received. 3) Refreeze the org in its new state This step can take longer It requires culture establishment while the old one is dismantled Re-socialization of employee behaviors Hiring policies must change Control systems must be tried and be consistent with the new culture and ignore the old one The upper management must be diligent and not allow the old pressure to creep up Chapter 14 Entry Strategy and Strategic Alliances Key Chapter Points Two Major Ideas 1) The decision of which foreign markets to enter, when to enter them and on what scale 2) The choice of entry mode Which Market (Recap of chapter 2) The attractive force of a country as a potentiality market depends on balancing the benef its, costs and risks associated with doing business in that country Long go through economic benefits of a function of size of the market, present wealth, likelihood of next wealth Future economic growth, which is a function of a free market system and the countrys capacity for wealth. Riskier in politically and economically unstable countries What kind of value the firm can create for consumers in that market Timing of Entry Early entry when a firm enters a foreign market before others do First movers advantage Pre-empt rivals Gain market share Establish a absolute brand Creating switching costs to tie your purchasers to you Set the price so you can cut prices when competitors arrive First movers disadvantage Pioneering costs, from the foreign business system being so different that time and expense must be sacrificed to learn the ropes Business failure if the firm makes mistakes based on bad knowledge Promotion of a new product or idea Late Entry When a firm enter s a foreign market after other firms do Can watch what your competitors do, and learn from their mistakes Can ride the coattails of their marketing and promotion Dont need to educate your customers Scale of entry Large scale Requires significant choice commitment which can lead to strategy commitments, where you cant get out of the deal without suffering significant consequences o It does create a presence and instills belief that you are committed to your product and customers Small Scale o Allows a firm to learn the market without exposing the firm to risks o Way to gather information o Lack of commitment may make it harder to attract customers Entry Modes Exporting Advantages Avoids substantial costs of establish manufacturing operations in another country May help the firm achieve experience curve, location economies and economies of scale hurts It may be cheaper to produce abroad High transportation costs on shipping could make it uneconomical to export Tariff barrie rs may prohibit your exporting, making it uneconomical, and the bane of tariff barriers can make it risky Delegates of the company that perform the sales, marketing, inspection and repair may work for other competitors and therefore will not have your best interests in mind Turnkey Projects The contractor agrees to parcel out every detail of the project for a foreign clients, including the training of operational personnel. At the end the client is handed the key to a fully utilitarian plant. Typically in complex production businesses. Advantages The know how is a blue-chip asset and you can earn returns on that knowledge Useful when FDI is moderate Can be less risky than traditional FDI Disadvantages No long term interest in that country May create a competitor out of the creator of your factory Could be selling your comparative advantage Licensing The licensor grants the rights to intangible property to another entity for a specified period, and in return, he licenso r receives a royalty fee from the licen understand. Advantages Licensee puts up most of the capital Good for firms lacking capital Prohibited from direct investment in a foreign market Disadvantages (3 serious ones) Does not give choky control over manufacturing, marketing, strategy, etc. that si required for realizing the experience curve and location economies. Limits a firms ability to share wealth amongst various divisions, and therefore limits a coordinated international strategy Giving away your comparative advantage Franchising a specialized form of licensing in which the franchiser sells the IP, but also the franchisee needs to follow those specific rules the franchisor sets out. Advantages Firm is relieved of many of the costs and risks Good for firms lacking capital Good when you are prohibited from FDI in that country Allows you to build a global presence quickly Disadvantage Great for services, but perhaps not manufacturing Limits a firms ability to share we alth amongst various divisions, and therefore limits a coordinated international strategy There are different definitions of quality, safety, etc. in different places making it difficult to maintain your image across other countries Joint Ventures Establishing a firm that is jointly own by two or more otherwise independent firms, its popular mode of entry into foreign markets. Advantages Get to benefit from the local firms knowledge of the legions country culture, norms, language, political situation, etc. Provide the local knowhow to a new country Share the risks with another company Sometime political factors make it impossible not to partner with a local firm Disadvantages Risking expectant away your comparative advantage to a potential competitor The firm doesnt have tight control over local operations, making it difficult for companies needing to transfer a culture Shared ownership can lead to conflicts between the two corporations, which can be exacerbated by the fac t that the two firms are from different nations. Wholly Owned Subsidiary The firm owns 100% of the stock in the project. Can be done through a Greenfield venture, where you build a factory from scratch or via learnedness of an existing enterprise. Advantages Protect your knowledge Tight control Required to benefit experience and locations economies Can engage in global strategic behaviors Disadvantages High costs and risks Culture transfer can be difficult, especially in terms of an acquisition Chapter Questions Tesco Q2 How does Tesco create value in its international operations? Tesco creates value by offering something that the market is lacking a well run competitive grocery store. They enter emerging markets with growth potential and few competitors. They then acquire or partner with current enterprises in that country in order to ensure that the value they are creating will work for that particular consumer.Tesco researches their potential partners maintenancefully, and they pick a solid chain with some stores and they build off of that known base. They bring to the table their core competencies, but they dont remove the local managers who have the knowledge of the customer. Finally they have the capital and the retailing know-how to bring their moderately successful firms into a globally back force. This value is created out of successfully supplement the joint venture strategy, where both firms bring something useful to the table and both are given the opportunity to be successful with their knowledge. Grocery stores are part service and part goods firms.Tescos strengths exist in both, but they are leveraging their service and management know-how transfer through the use of the joint venture. We know that value creation is measured by the difference of opinion between the converted inputs that create the cost of a product and how much the consumer is willing to pay for that product. More specifically in this case it is the do consumers are willing to pay for the goods inside of the Tesco subsidiary. Porter states that it is important for the firm to decide where it wants to be strategically positioned in terms of cost effectiveness, and differentiation. Tesco wants to be a low cost provider of all the goods a consumer would obtain at a grocery store.They compete through their value chain by gaining purchasing power through expansion, and by leveraging their values skills in foreign markets. CT 5 A small Canadian firm that has developed some valuable new medical products using its unique biotechnology know-how is trying to decide how best to serve the EU. Establishing a manufacturing firm outside of Canada is not outside of the firms reach, but it will be a stretch. Which of the following options would you recommend and why? a) force the product at home and let foreign sales agents handle the marketing. b) Manufacture the product at home and set up all own subsidiaries in Europe to handle marketing c) Enter into an shackle with a large European pharmaceutical firm.The product would be manuf in Europe y the 50/50 joint venture and marketed by the European firm. As stated in the text, if the firms core competency is the based on control over proprietary proficient know-how, it should avoid licensing and joint-venture arrangements if possible to minimize the risks of losing control over that technology (option C). While the strategic alliance will allow for entry into the foreign market, I dont feel that the EU is such a different type of market that it would be impossible to find someone in the US who they could hire to help them understand that market. The partnership can give competitors low cost access to the new technology and markets.Wholly owned subsidiaries for marketing would allow for the marketing to be owned by the firm and therefore reduce the risks associated with using the local sales agents that may serve their own interests in lieu of the firms. However, I suggest that the cor e competency of the firm is not their marketing skills, but rather their scientific know-how. This means that they would be choosing to take on major risks and expenses in order to transfer a non core competency and therefore find themselves at risk of failure. Going back to the Lincoln electric case, we saw how selecting a mode of entry strategy on something other than your comparative can lead to significant issues.Exporting (option a) allows for the firm to realize location economies, experience curve economies while suffering from high transport costs, trade barriers and problems with local marketing agents. In this instance, the cost of shipping medical instruments is typically kind of low, and the trade barriers between Canada and EU are nonexistent. However, they may find the local sales agents to be at odds with other competitors making it difficult to distribute the product. Despite this drawback however, I feel that the financial risks associated with option b and the da ngers of losing their core competency in option c I would use the less risky option a. Chapter 15 Exporting, Importing and Counter tack Key Chapter Points Chapter Questions CT3 An alternative to using garner of impute is export deferred payment insurance.What are the advantages and disadvantages of using the credit insurance rather than a letter of credit for exporting a) A luxury yacht from California to Canada b) form tools from New York to the Ukraine A letter of credit, abbreviated as L/C is Issued by the bank at the request of the importer States the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents Charge a percentage to the importer as a fee for the service May require the importer to do some type of deposit It is a financial contract Allows for the banks to determine the creditworthiness of your trade partner, so no relationship must exist for the trade to take place Export Credit I nsurance Sometimes exporters who require a letter of credit from an importer will lose their business to another exporter who doesnt require all the additional work Thus when the importer is in a strong bargaining position and able to play competing suppliers against each other, an exporter may have to forgo a letter of credit. This exposes the exporter to risk The exporter can protect themselves against that risk through the us of exporter insurance The FCIA provides coverage against commercial and political risks. losses due to commercial risk result from the buyers insolvency or payment default. a) Because the competition for selling this product is somewhat high I would expect the buyer to have more power than the marketer and therefore I could see them asking the seller to forgo the letter of credit. If that is the case export credit insurance will be the likely route to manage the trade.However, if the seller can get the buyer to comply the letter of credit between the r eputable Canadian bank and the US bank will be a good asset to leverage if possible. b) Because of the nature of the transaction, the letter of credit may be the best solution. This way the seller can run across that the buyer is credit worthy and the bank will take care of the relationship needs so the buyer and seller do not have to create a relationship. My only concern would be that of the Ukrainian bank and whether you can trust their banking system. It may be more prudent to use the exporter insurance again to guard against the ever present political and economic risks in that country. &8212&8212&8212&8212&8212&8212&8212 Structure Incentives &038 controls Processes Culture People